TY - JOUR
AU - Goda, Gopi Shah
AU - Shoven, John B
AU - Slavov, Sita Nataraj
TI - How Well Are Social Security Recipients Protected from Inflation?
JF - National Bureau of Economic Research Working Paper Series
VL - No. 16212
PY - 2010
Y2 - July 2010
DO - 10.3386/w16212
UR - http://www.nber.org/papers/w16212
L1 - http://www.nber.org/papers/w16212.pdf
N1 - Author contact info:
Gopi Shah Goda
Stanford University
SIEPR
366 Galvez St.
Stanford, CA 94305
Tel: 650/736-0480
Fax: 650/723-8611
E-Mail: gopi@stanford.edu
John B. Shoven
Department of Economics
579 Serra Mall at Galvez Street
Stanford, CA 94305-6015
Tel: 650/723-3273
Fax: 650/723-8611
E-Mail: shoven@stanford.edu
Sita Slavov
Schar School of Policy and Government
George Mason University
3351 Fairfax Drive, MS 3B1
Arlington, VA 22201
Tel: 703/993-3171
E-Mail: sslavov@gmu.edu
M1 - published as Gopi Shah Goda, John B. Shoven, Sita Nataraj Slavov. "How Well Are Social Security Recipients Protected from Inflation?," in David A. Wise, editor, "Investigations in the Economics of Aging" University of Chicago Press (2012)
M2 - featured in NBER digest on 2010-12-01
AB - Social Security is widely believed to protect its recipients from inflation because benefits are indexed to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). However, the CPI-W may not accurately reflect the experience of retirees for two reasons. First, retirees generally have higher medical expenses than workers, and medical costs, in recent years, have tended to rise faster than the prices of other goods. Second, even if medical costs did not rise faster than the prices of other goods, as retirees aged, their medical spending would still tend to increase as a share of income; that is, each cohort of retirees would still see a decline in the real income available for non-medical spending. We show that, for the 1918 birth cohort, Social Security benefits net of average out-of-pocket medical expenses have declined relative to a price index for non-medical goods by around 20 percent for men, and by around 27 percent for women. We explore alternative options for indexing Social Security benefits and discuss the impact of these alternatives on Social Security's long-term finances.
ER -